Re Environinvest Ltd (No. 4) - [2010] VSC 549

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 2384 of 2010

IN THE MATTER OF ENVIRONINVEST LIMITED
(RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION)
(ACN 080 743 791)

ENVIRONINVEST LIMITED (RECEIVERS AND MANAGERS APPOINTED) (IN LIQUIDATION) (ACN 080 743 791) (IN ITS CAPACITY AS RESPONSIBLE ENTITY OF EACH OF THE MANAGED INVESTMENT SCHEMES LISTED IN SCHEDULE 1)	First Plaintiff
JAMES PATRICK DOWNEY (IN HIS CAPACITY AS SCHEME LIQUIDATOR OF EACH OF THE MANAGED INVESTMENT SCHEMES LISTED IN SCHEDULE 1)	Second Plaintiff
MARKO YURI MISKO & ORS	Defendants

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JUDGE:	JUDD J
WHERE HELD:	Melbourne
DATE OF HEARING:	12 November 2010
DATE OF JUDGMENT:	8 December 2010
CASE MAY BE CITED AS:	Re Environinvest Ltd (No. 4)
MEDIUM NEUTRAL CITATION:	[2010] VSC 549

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CORPORATIONS – Managed Investment Scheme– Winding up by a person appointed under s 601NF(1) of the Corporations Act 2001 (Cth) – Conflict of duty – Person appointed to wind up the schemes also the liquidator of the Responsible Entity – Directions in winding up under s 601NF(2) of the Corporations Act – Approval of deeds of sale – Approval of mediated agreement as to costs, expenses and remuneration – Scheme liquidator excused from compliance with obligations arising under scheme constitution – Discharge of scheme liquidator on completion of winding up.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr S Rubenstein	Norton Rose
For the Receivers and Managers of the First Plaintiff	Mr HNG Austin	Minter Ellison
For the Defendants	No appearance
For the Receivers and Managers of Primary Yield Finance Pty Ltd and ABL Nominees Pty Ltd (in its capacity as trustee of the Lighthouse Warehouse Trust No 8 (Environinvest Finance))	Mr I Hristovski	Gadens Lawyers

HIS HONOUR:

Introduction

The collapse of the Environinvest managed investment scheme was not an isolated instance of failure of such a scheme. Other primary production schemes collapsed at around the same time and more recently. The schemes were designed and constructed to comply with the requirements of the Corporations Law and the Corporations Act2001 (Cth), and at the same time offer substantial ‘tax breaks’. It is not part of this proceeding to find the cause or causes of the failures, although it seems clear that the cause cannot be attributed solely to the global financial crisis or the prolonged drought. The causes will become more apparent as liquidations are concluded and resulting litigation finalised.

Wherever ultimate responsibility for the collapses may reside, it is difficult to overlook structural flaws in the design and regulation of managed investment schemes. These flaws facilitated investment strategies, management practices and decisions, regulatory attitudes and revenue policies which together conspired to cause huge financial loss to investors, the revenue, banks and other financial institutions, and the communities in which the schemes were operated.

Whenever an enterprise is designed and structured to depend upon third party financing of ‘tax effective’ investment as its primary source of revenue, failure is almost inevitable. The generation of such revenue can become the substitute…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2010] VSC 549
Decision Date: 8 December 2010

CaseChat Overview and Summary

Environinvest Ltd, a managed investment scheme, faced a winding up process which raised concerns about potential conflicts of interest. The dispute centred on whether the person appointed to wind up the schemes, who was also the liquidator of the Responsible Entity, could act in both capacities without breaching their duties. This matter was brought before the Federal Court of Australia.

The central legal issues the court needed to address were whether the person appointed to wind up the schemes could also serve as the liquidator of the Responsible Entity, and if so, whether this arrangement complied with the obligations under the Corporations Act 2001 (Cth). Additionally, the court had to determine if the scheme liquidator could be excused from certain obligations arising under the scheme constitution and if the liquidator could be discharged upon the completion of the winding up process.

The court examined the statutory framework provided by section 601NF(1) of the Corporations Act, which allows for the appointment of a person to wind up managed investment schemes. It considered whether there was a conflict of interest in the dual role of the liquidator and the scheme liquidator. The court concluded that despite the potential for a conflict, the statutory provisions allowed for the person to act in both capacities. The court also found that the scheme liquidator could be excused from certain constitutional obligations and could be discharged upon the completion of the winding up process, provided the directions and approvals were in line with the statutory requirements.

The final orders of the court approved the deeds of sale and the mediated agreement concerning costs, expenses, and remuneration. The court also excused the scheme liquidator from certain compliance obligations under the scheme constitution and discharged the scheme liquidator upon completion of the winding up.

Orders